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Treasuries Move Notably Lower On Strong Retail Sales Data

After ending the previous session nearly unchanged, treasuries showed a notable move to the downside during trading on Tuesday.

Bond prices regained some ground after an initial drop but remained firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.4 basis points to 0.756 percent.

The initial weakness among treasuries came as a report from the Commerce Department showing a much bigger than expected rebound in retail sales reduced the appeal of safe havens like bonds.

The Commerce Department said retail sales skyrocketed by 17.7 percent in May after plunging by a revised 14.7 percent in April.

Economists had expected retail sales to spike by 8.0 percent compared to the 16.4 percent nosedive originally reported for the previous month.

The record increase in retail sales was partly due to a substantial rebound in sales by motor vehicle and parts dealers, which soared by 44.1 percent in May after tumbling by 12.3 percent in April.

Excluding the rebound in auto sales, however, retail sales still surged up by 12.4 percent in May after plummeting by 15.2 percent in April. Ex-auto sales were expected to jump by 5.5 percent.

Sales by clothing and accessories stores showed a particularly sharp increase, catapulting by 188.0 percent in May following a 63.4 percent nosedive in the previous month.

Core retail sales, which exclude automobiles, gasoline, building materials and food services, also surged up by 11.0 percent in May after plunging by 12.4 percent in April.

On the heels of the much better than expected jobs report released earlier this month, the data reinforced optimism about a quick economic recovery.

However, treasuries regained some ground after Federal Reserve Chair Jerome Powell cautioned that "significant uncertainty remains about the timing and strength of the recovery."

During his semiannual testimony before the Senate Banking Committee, Powell noted some recent indicators have pointed to stabilization and even a modest rebound in economic activity following the coronavirus-induced downturn.

Powell specifically cited the Labor Department's recent jobs report showing employment unexpectedly jumped by 2.5 million jobs in the month of May.

The Fed chief attributed the surprise job growth to some businesses reopening amid the easing of restrictions on mobility and commerce and the extension of federal loans and grants as well as stimulus checks and unemployment benefits supporting household incomes and spending.

However, Powell noted that output and employment levels remain far below their pre-pandemic levels and warned that there continues to be significant uncertainty about the economic outlook.

"Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it," Powell said. "Until the public is confident that the disease is contained, a full recovery is unlikely."

Meanwhile, traders largely shrugged off a report from the Fed showing U.S. industrial production increased by much less than expected in the month of May.

The Fed said industrial production jumped by 1.4 percent in May after plummeting by a downwardly revised 12.5 percent in April.

Economists had expected industrial production to surge up by 2.9 percent compared to the 11.2 percent plunge originally reported for the previous month.

A report on new residential construction may attract some attention on Wednesday, while traders are also likely to keep an eye on Powell's second day of congressional testimony.

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